Obama's energy policy takes center stage as $4 gas prices loom

President Obama will put on a hard hat and make a two day road trip to illustrate his energy strategy. On his tour to highlight “American made energy:”  a big solar farm in Nevada, oil and gas drilling rigs in New Mexico and a huge storage facility in Oklahoma where a new pipeline will help get the oil to Gulf Coast refineries.

But, will the tour be sufficient to counter Republican sniping over his energy policies and endear him to voters who will soon have to pay $4 a gallon or considerably more at the pump?

From a political standpoint, the Obama tour might be a good idea, say political strategists. Everyday Americans are fuming as they watch the price of gasoline rise at their local gas stations. But they are unsure who to blame: Obama, the oil companies, or the situation in the Middle East.

“The rising price of gas becomes a problem to the degree Obama is blamed,” says Lee Miringoff, director of the Marist Institute for Public Opinion in Poughkeepsie, N.Y. “This is not an issue he can ignore.”

Even while Obama was flying west, the price of gasoline at the pump continued to rise. On Wednesday, according to AAA, the national average jumped 2 cents a gallon compared with Tuesday and up 30 cents a gallon from a month ago.

More increases are on the way. Within the next two weeks, refiners will start to shift over to the summer blend of gasoline, which is more expensive to produce. “On a wholesale basis that boutique blend of gasoline sells for 17 cents to 22 cents more than the gasoline we use now,” says Tom Kloza, the publisher of Oil Price Information Service (OPIS) in Brick, N.J. “When the wholesale goes up like that, the retail price goes with it.”

But Pew Research Center president Andrew Kohut, speaking at Monitor Breakfast on March 14, said gasoline prices are a big question mark for both the Republicans and Democrats. In Pew surveys, he says any optimism about the economy, especially as more jobs are created, is offset by bad news about gasoline prices.

“We continue to get only about 10 percent of the American public saying that the economy is either excellent or good,” said Mr. Kohut.

However, Republican political strategist Leslie Sorrell of the Magnolia Group in Dallas calls the trip “window dressing.”

Despite Obama’s claims that the oil industry is producing more oil domestically than any time in the last eight years, Ms. Sorrell maintains the Obama administration has “tied the oil industries hands.”

“People say they cannot get a permit,” says Sorrell. “We are passionate about it here in Texas.”

According to the White House, the goal of the trip is to illustrate the president’s policy of diversification of energy supplies, particularly renewable energy sources. However, the trip also illustrates some of the challenges facing US companies and Obama’s energy policy.

First stop: solar energy

For example, Obama’s first stop is in Boulder City, Nev., to visit the Copper Mountain Solar 1 Facility, which the White House calls “the largest photovoltaic plant operating in the country.” With nearly one million solar panels, the plant supplies enough energy to power 17,000 homes.          

However, the US solar industry is struggling. US-made panels only represent about one-third of the panels sold. Chinese-made solar panels now represent more than half of the market.

On Tuesday, the Obama administration said it would impose tariffs of 2.9 percent to 4.73 percent on Chinese-made solar panels because of a finding that the Chinese companies receive an illegal export subsidy from the Chinese government.

The US solar industry also maintains the Chinese companies are illegally dumping solar panels, that is selling them at below their actual costs. The Commerce Department is expected to make that ruling in May and could impose stiffer tariffs.

Second stop: oil drilling

Obama will then travel to Maljamar, N.M., where the White House says there are some 70 active drilling rigs looking for oil on federal lands. In a March 15 speech in Maryland, Obama said “under my administration, America is producing more oil today than at any time in the last eight years. That is a fact.  We’ve quadrupled the number of operating oil rigs to a record high.”

However, the oil industry – including companies in New Mexico – say they could be producing even more if the government let them.

The federal Bureau of Land Management needs more funding so it can process record demand for drilling permits, according to Steve Henke, president of the New Mexico Oil & Gas Association. “The administration should invest, as a partner, in an industry that creates jobs and revenues,” he said in a statement.

On top of that, Mr. Henke says the federal government could decide not to list dunes sagebrush lizard as an endangered species. Listing the lizard as endangered could reduce drilling and production in New Mexico, says Henke.

Third stop: oil pipeline

On Thursday, Obama will travel to Cushing, Okla., which is a gigantic storage area for oil. Obama will use the occasion to highlight his approval of a new pipeline that will move petroleum from Cushing to refineries and export facilities around the Gulf of Mexico. The White House says this will help relieve some of the bottleneck of oil produced in the Midwest.

But the oil industry has been incensed over Obama’s opposition to the Keystone XL pipeline, which would bring 700,000 barrels a day of oil from Canada and Montana and North Dakota. “To assure we have energy for decades to come, the president needs to approve the Keystone XL pipeline,” says Jack Gerard, the president of the American Petroleum Institute (API), the industry lobbying group in Washington.

On Tuesday, the API released a poll conducted by Harris Interactive that asked registered voters if they felt increasing energy taxes would increase consumer costs. Not surprisingly, 76 percent of the 1,009 respondents said they thought higher taxes would lead to higher gasoline prices. 

Obama and the oil industry have been at odds over the issue for the last three years. The president blasts the oil industry on a regular basis, particularly over their use of tax-reduction items such intangible drilling expenses.

For example, when an oil company drills for oil, many of the efforts are unsuccessful. However, instead of depreciating the effort over five years, the oil companies can expense the effort all at once, reducing their taxes. According to a US Treasury estimate, repeal of the intangible drilling expense would net the government $14 billion between 2013 and 2022. Repeal of other tax deductions used by the industry would add another $11.5 billion over the same period.

Obama has tried to get Congress to change the tax code as it applies to the oil industry.

“It has gone nowhere, there has not even been a hearing on his proposals the last few years,” says Pete Davis of Davis Capital Investment Ideas, which provides Wall Street with information. “If there is no hearing, you don’t have a prayer.”